Stationarity issue in panel data

[Dr. Rashmi Ahuja]

Hi all,

I have a panel data with N = 5 and T =30 so total 150 observations. I have a total  of 4 variables (one dependent and  three independent variables) and all are in log since I need to interpret the elasticity in my model. 

After checking the stationarity with panel unit root tests in eviews, I find out that my dependent variable is I(1) and all three independent variables are stationary at level. 

Now please guide me :  is it good to go with static panel data models if I don't want to take the difference of my dependent variable as that does not make economic sense  ? Also, is it really necessary to check the stationarity in panel data in this case  where T >N ? 

Further, as per my understanding , for checking cointegration, all variables need to be of same order... ? So if static panel data models could not be applied, what should be the correct approach in this case? Please suggest!

Thanks 

Rashmi  

[Miklesh Yadav]

Dear Rashmi,

It is right approach to check the stationarity of variables in your case as you have long T ( T=30 years). 

You can apply ARDL panel because your variables are in the combination of I(1) and I(0). Here, static model does not suffice.

Regards

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[Navjot Kaur]

Respected Sir

If all the variables in my model are Stationery at Levels, can I go for ARDL?

Thanks & Regards

Navjot kaur

[Miklesh Yadav]

Dear Novjot Jee,

No, ARDL can be applied only in case of variables integrated at combination of I(0) and I(1). 

Go for the static panel in this case.

Regards

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